Buy Texmaco Rail & Engineering; target of Rs 140: Edelweiss

Edelweiss' research report on Texmaco Rail & Engineering
Texmaco Rail & Engineering’s (Texmaco) Q1FY18 revenue dipped 12.5% YoY as non-supply of material by Indian Railways (IR) impacted wagon dispatches. However, the rail EPC (Kalindee) business continued to shine with ~110% YoY jump in topline. Lower capacity utilisation in the wagon & steel foundry division led to -2.1% EBITDA margin versus 4.9% in Q1FY17. Texmaco Group’s order book at Q1FY18 end stood at ~INR36bn; we expect it to get a boost with IR likely to tender out orders for 9,500 wagons and rising opportunities in coaches, locomotives and EPC. We expect wagon revenue to recover in Q2FY18 and believe that order intake will drive stock performance going ahead. Maintain ‘BUY’ with SOTP-based target price of INR140.

Outlook

Our SOTP value for Texmaco works out to INR140, based on P/E of 25x to FY19E earnings of Texmaco (merged with Kalindee) and Bright Power. Maintain ‘BUY’ recommendation.

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